Asigning vs. double close

16 Replies

I'm just starting so I haven't come to this in my reading yet but I'd like to know the pros and cons to this subject. What situations make me lean to which solution? Thanks.

Assigning is more difficult to do now. Double closings are pretty much a thing of the past in a lot of areas. Some title companies won't do them at all. There are a number of obstacles to both, bit we've circumvented the process altogether with the use of an LLC.

All you need to do is make all offers in the name of an LLC. The LLC has only one purpose and that is to make this offer. It must have its own TIN as well. By using the LLC to make the offer you've eliminated the need for both the dbl. closing and the/or the assignment.

Joe Villeneuve
REcapSystem
A2REIC 

@Joe Villeneuve, thanks for the heads up, was not aware that setting up an LLC would eliminate the need to double close or assign. Will definitely look into it in my area.

@Account Closed  The way it works is: 

1 - The LLC makes the offer.
2 - Offer is accepted
Here is where an assignment might take place.  Instead...
3 - Sell the LLC, with the agreed upon offer, to the person that you would have assigned it to.
4 - New owner of the LLC closes in the name of the LLC.
The LLC and the seller have the agreement...and that is who closed.

The need for a double closings is eliminated as well.

Joe Villeneuve
REcapSystem
A2REIC

Bryan,

Another thing to keep in mind regarding Assigning or Double Closing is the profit.  Yeah, I know it shouldn't matter.  But If you are wholesaling and your profit is $20,000.  But the buyers profit is $25,000 they may not like that.  That's the best time to double close.

@Bryan O'Neal The reason you would prefer to assign is because there is an expense to double closing (maybe an extra attorney fee and recording fee) or an expense to creating an LLC for the offer and then selling the LLC, as @Joe Villeneuve  suggested.

The reasons not to assign are that 1) you can't for some reason (short sale, reo, seller would balk, etc), 2) the end buyer would balk at the assignment fee.  They end buyer will not know (unless they are told) what you got the property for until after the closing.

As for the latter, some buyers might become offended if you are making too much money on the deal.  This should be irrelevant as what matters is only whether or not it is still a deal for them.  But it is what it is.  Around where I invest I'd say most wholesalers would assign anything with a $5K assignment fee or less.  If they are going to make more, they would double close.

@Larry T. The cost of the LLC varies from state to state. It's $50 in Michigan, and you can set up 2 a day (limits for TIN). We have them ready and waiting, usually 10 at a time. When we use one (offers are not a use since if the offer is not accepted, we can use the LLC on the next offer) we just replace it. There are no attorney fees since you use the same docs for all of them. Once you have the first one written, you just change the LLC name, address, members, etc...

Double closings mean double closing costs. Usually less than the cost of the LLC. Plus, the property is already set up in an LLC for tax/asset protection purposes. Our standard wholesale fee is what we charge to sell the LLC...since the results are pretty much the same.

I tell people all the time, if you want 12 eggs, and someone only wants to sell you a dozen...don't argue.

Joe Villeneuve
REcapSystem
A2REIC

Originally posted by @Joe Villeneuve:

@Larry T. The cost of the LLC varies from state to state. It's $50 in Michigan, and you can set up 2 a day (limits for TIN). We have them ready and waiting, usually 10 at a time. When we use one (offers are not a use since if the offer is not accepted, we can use the LLC on the next offer) we just replace it. There are no attorney fees since you use the same docs for all of them. Once you have the first one written, you just change the LLC name, address, members, etc...

Double closings mean double closing costs. Usually less than the cost of the LLC. Plus, the property is already set up in an LLC for tax/asset protection purposes. Our standard wholesale fee is what we charge to sell the LLC...since the results are pretty much the same.

 Nice!  It seems you can do everything cheaper than I can here in NY!

As a rehabber and party to many of these types of transactions, I prefer the assignment because the costs are lower.  I fully understand @Joe Villeneuve  strategy and it makes sense on the surface.  I am curious how this would play out:

  • The original Offer is signed by Member A of New LLC
  • The Operating Agreement submitted with Offer only shows Member A
  • New LLC is sold to Member B by selling the membership interest of Member A
  • At closing, Member B shows up to sign on behalf of New LLC

What type of paper trail is required for this transaction so that the closing attorney doesn't blow a gasket trying to reconcile all the parties involved??

jeez...LLC is north of $250 here, but at least you get to keep it. selling the LLC is not normally done here but rather the sale of a trust.

whatever your course of action, i suggest an LLC to provide you protection. you never know what might come back to haunt you down the line. better to have the LLC responsible as opposed to your personal assets

@Stan Butler  "I am curious how this would play out:

  • The original Offer is signed by Member A of New LLC
  • The Operating Agreement submitted with Offer only shows Member A
  • New LLC is sold to Member B by selling the membership interest of Member A
  • At closing, Member B shows up to sign on behalf of New LLC

What type of paper trail is required for this transaction so that the closing attorney doesn't blow a gasket trying to reconcile all the parties involved?"

All you need is an addendum (you use the same one every time you do this) stating the new member is in place, with the date of transfer clearly indicated.  We've had a couple of times this was questioned, but never an issue that did anything other than have us answer it.  The answer, was simply calling attention to the addendum.

In order to make the new owner of the LLC comfortable we will sometimes have the managing member attend the closing, but there has never been an issue. Remember, the "member" isn't the one buying it, the LLC is. All that is needed is to show that the member is a member of the LLC and they have the authority to sign for the LLC...so the new owner is always shown as the managing member.

Joe Villeneuve
REcapSystem
A2REIC

We have seen all of the methods here done and they all work. Depending on the buyer and how seasoned they are it may be harder to sell the LLC.

As mentioned above if you have a large profit margin a double close will probably prevent problems with the seller seeing you making a huge profit on the HUD (which we have seen kill deals).

Assignments can be hard to do with bank-owned deals and/or short-sales (the paperwork you sign may prohibit this).  Assignments are generally cheaper though than double closings.

If you can find an attorney/title company that will double close (if you have a local REIA join or at least get a monthly news letter and look for title companies/closing attorney's and call to see if they will do this as they are the ones most likely that will and the ones at our local REIA advertise they do double closings) there are a few things you can do to minimize your costs. Make sure you are not being charged twice foe the same title. If the end buyer is paying the closing costs then the fee they pay should cover your title exam on the first side of the transaction however you will want to get title insurance on your side of the closing. If you are paying for both closing then split the title exam fee on both HUDs. If there is an HOA fee make sure the end buyer is paying an HOA initiation fee and or HOA dues and it is not being paid twice.

Thanks to everyone for all of the great info! I'm glad I asked.

This is great information !

Originally posted by @Joe Villeneuve :

@Account Closed  The way it works is: 

1 - The LLC makes the offer.
2 - Offer is accepted
Here is where an assignment might take place.  Instead...
3 - Sell the LLC, with the agreed upon offer, to the person that you would have assigned it to.
4 - New owner of the LLC closes in the name of the LLC.
The LLC and the seller have the agreement...and that is who closed.

The need for a double closings is eliminated as well.

Joe Villeneuve
REcapSystem
A2REIC

This will vary from state to state. 

In California selling an LLC is a massive pain and adds an additional $800 cost.

Ask someone who wholesales in your state to be certain. Its a big country with many different rules and best practices for each state. 

Holy smokes there is some regional information here that is so wrong when used in context for another area. I'm really sorry I don't know the NC rules as well but @Nasar Elarabi does. He is who you need to speak to. 

I've assigned EVERY deal this year and its common practice where I live. I'm also in the middle of double closing a deal right now. Be sure to get advice from experts in your area so you can be sure the information provided is relevant. 

Hi , I'm going to try this method of selling the corp. (to my end buyer rehabber) on a short sale that i am negotiating.

Question:  do i get paid at the very moment of transferring the corp??  If my fee is over $25k, will the end buyer have a problem with that fee ? I may have to get the endbuyer to put the funds in escrow in case the deal doesn't close (assuming the title search I've done is incorrect).    Opinions from anyone who doesn't mind joining in.

thank you

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